Why Canada's fixed mortgage rates are drifting back up even though the Bank of Canada has not moved its policy rate in nearly a year.
A widely followed lender mortgage rate forecast updated on September 10, 2026 argues that the Bank of Canada is likely to keep its policy rate at 2.25% for the remainder of the year, even as an energy-driven surge in bond yields pushes Canadian fixed mortgage rates back toward where they sat a year ago. The revision follows the central bank’s September 2 decision to hold the overnight rate for a seventh consecutive time.
The assessment, authored by True North Mortgage founder and chief executive Dan Eisner and built alongside published forecasts from Canada’s major bank economics teams, describes an economy caught in a stalemate: inflation risk is too live to justify a cut, and growth risk from the U.S. trade war is too heavy to justify a hike. The next scheduled rate announcement is October 28, 2026.
A Seventh Straight Hold at 2.25% Keeps Prime Pinned at 4.45%
The Bank of Canada’s benchmark rate has now been unchanged for close to a year, down sharply from the 5.0% peak reached in June 2024. With the policy rate at 2.25%, most big bank prime rates remain at 4.45% — the figure that sets the base for variable-rate mortgages before lender discounts are applied.
That matters because the two halves of the mortgage market are now moving in opposite directions. Variable rates take their cue from prime and are therefore frozen in place. Fixed rates take their cue from the bond market, which has been anything but calm.
Brand Magazine has reported previously that the Bank of Canada’s rate hold extended to a seventh decision in early September, and the forecast update is essentially the lending industry’s read on what that pause means for borrowers over the next four years.
Why the 5-Year Bond Yield Jumped to 3.6% and Dragged Fixed Rates Higher
Canada’s five-year bond yield — the reference point for five-year fixed mortgage pricing — has climbed to 3.6%. The forecast attributes the move to a renewed U.S.–Iran conflict, crude oil trading above US$100 a barrel, signs that U.S. inflation accelerated in August, and mounting anxiety about government debt loads on both sides of the border.
Fixed mortgage rates have risen roughly 0.10% in response. The forecast lists several pressures keeping yields elevated:
- Sustained energy costs: months of higher prices, with crude back above the US$100 mark.
- Supply disruption risk: the longer the conflict runs, the greater the threat to energy supply chains.
- Tarifflation: escalating tariffs on both sides of the Canada–U.S. border feeding into goods prices.
- U.S. core inflation: running above 3% for the past year.
- Debt servicing: U.S. interest costs consumed 21% of every government revenue dollar in the first quarter of 2026, with Canada at roughly 9%, up from about 7% in 2019.
Working the other way are threatened tariffs that could weigh on growth, consumer demand pullback after months of expensive energy, and a labour market still in excess supply. The forecast’s conclusion is blunt: fixed rates will not fall meaningfully until yields do, and yields are unlikely to trend down without clearer evidence of economic softening.
Markets Price a 45% Chance of a Hike Ahead of October 28
Rate market odds cited as of September 10, 2026 put a 25-basis-point hike at 45% probability and no change at 55%. Neither figure clears the 60% threshold generally treated as a confident call, which underlines how genuinely two-sided the October decision looks.
Eisner’s own framing is that a cut is off the table while a hike remains visible. Looking through to the first quarter of 2027, he assigns roughly an 80% chance the policy rate and prime rates hold, 15% to a hike, and 5% to a cut. His stated trigger for a continued hold is core inflation staying inside the Bank’s 1–3% target band while trade disruption remains a dominant concern.
The two CPI readings ahead of the October announcement, along with crude prices, are flagged as the variables most likely to decide the outcome.
The Economic Readings Behind the Stalemate
The forecast scores each major indicator as pointing to a cut, a hold, or a hike. On the current data, almost everything reads “pause”:
- Inflation: July 2026 headline CPI rose unexpectedly to 3.0% from 2.8%, driven by energy and lingering World Cup travel pricing. Core inflation, the average of median and trimmed measures, edged up to 2.0% from 1.9%. Gas prices rose 25.7% year over year, but only about half the CPI basket sits above 3%.
- Labour: August brought a loss of 42,000 jobs against expectations of a 15,000 gain, concentrated in services as post-tournament staffing normalised. The unemployment rate held at 6.4% on slightly higher participation.
- Wages: June average wage growth slipped to 2.0% from 2.8%, the lowest annual pace in four years.
- Growth: June real GDP rose 0.3%, capping a second quarter of 0.9% growth, or 3.3% annualised — the fastest quarterly pace since 2023, led by oil and gas. Economists broadly do not expect a repeat.
- Grocery and shelter: food prices rose 3.1% annually, the 18th straight month above headline inflation, while shelter inflation eased to 1.9%, its lowest since 2020.
The forecast also notes the Bank listed the 50% U.S. tariffs imposed on August 21 as a top growth risk, with Canadian retaliatory tariffs taking effect September 8. Public opinion has hardened alongside that escalation, with 73% of Canadians rejecting concessions in the trade talks.
What Eight Economics Teams Expect Through 2027
The bank forecasts collected in the update agree almost unanimously on 2026 and diverge sharply on 2027.
| Forecaster | 2026 view | 2027 view |
|---|---|---|
| National Bank | Hold at 2.25% | 2.50% in Q1, 2.75% from Q2 onward |
| TD Economics | Average 2.25% | Hold through to 2031 |
| Scotiabank | Hold most of year, 2.75% by year-end | 3.0% by year-end |
| CIBC Economics | Hold at 2.25% | 2.50% by mid-year, 2.75% by year-end |
| RBC | Hold at 2.25% | 2.50% in Q1, 3.25% by year-end |
| BMO Capital Markets | Hold at 2.25% | Hold at 2.25% |
| Desjardins | Hold at 2.25% | 2.50% in Q2, 2.75% in Q3 |
| Capital Economics | Hold at 2.25% | Rise to 2.75% |
| Oxford Economics | Hold at 2.25% | Not specified |
The spread between BMO’s flat line and RBC’s 3.25% end-2027 call is a full percentage point — a meaningful gap for anyone choosing a term length today. The forecasts are also noted as assuming a favourable CUSMA review, with trade uncertainty and energy prices treated as the wild cards.
For context, the Bank of Canada’s published neutral rate range is 2.25% to 3.25%, meaning the policy rate currently sits at the very bottom of the band deemed neither stimulative nor restrictive.
Where the Bond Market Sees Prime and Five-Year Fixed Rates by 2030
Two market-implied paths are included in the update, both derived from swap and forward pricing rather than lender quotes.
| Year | Implied BoC rate | Prime rate | 5-yr bond yield | 5-yr fixed outlook |
|---|---|---|---|---|
| 2026 | 2.25% | 4.45% | 3.40% | 4.39% |
| 2027 | 3.25% | 5.45% | 3.87% | 5.27% |
| 2028 | 3.25% | 5.45% | 3.95% | 5.35% |
| 2029 | 3.25% | 5.45% | 4.03% | 5.43% |
| 2030 | 3.50% | 5.70%+ | 4.31% | 5.56% |
Canada’s prime rate currently sits 220 basis points above the policy rate. The implied path therefore points to a full percentage point of tightening priced in for 2027 and gradual upward drift in fixed pricing thereafter. These are market-implied projections, not offers, and actual rates vary by lender and borrower profile.
What the Hold Means for Renewals and Household Balance Sheets
For borrowers renewing this fall, the practical consequence is that the variable side of the market has stopped improving while the fixed side has started deteriorating slightly. The forecast describes lender margins as tight and the rate market as reactionary, with occasional deals surfacing when bond yields cooperate. It suggests securing a rate hold if a purchase or renewal is imminent, given the likelihood of continued volatility.
The wider credit picture gives that advice some weight. Canadian lenders have already reported a near-tripling of impaired loans to $37.5 billion, a reminder that a prolonged plateau in borrowing costs is not the same thing as relief for stretched households.
One historical caution sits in the update, attributed to mortgage analyst Rob McLister: rates are entirely capable of sitting still for years, as they did between 2010 and 2014. A stalemate is not automatically a prelude to movement in either direction.
The immediate calendar is short. The next CPI reading was scheduled for September 14, July GDP for September 29, and the next labour force survey for October 9 — all landing before the Bank’s October 28 announcement.
Figures cited here are third-party forecasts and market-implied projections that change with conditions. They are reported as published and are not financial advice.
Frequently Asked Questions
Why are fixed mortgage rates rising if the Bank of Canada hasn’t moved?
Fixed rates follow the bond market, not the policy rate. The five-year Canada bond yield has climbed to 3.6% on energy prices and inflation risk, lifting fixed mortgage rates about 0.10%.
When is the next Bank of Canada rate decision?
October 28, 2026. Market pricing as of September 10 put a 25-basis-point hike at 45% probability and no change at 55%.
Could the Bank of Canada actually raise rates rather than cut?
The forecast treats a hike as the more visible risk than a cut, citing elevated energy prices and government debt levels, though a hold remains the base case through 2026.
What would it take for fixed rates to fall meaningfully?
A sustained downward trend in bond yields, which the forecast says requires clearer signs of deeper economic softening and easing inflation pressure.
